SACRAMENTO -- California politicians and federal bureaucrats are scrambling to iron out an unexpected wrinkle in the nation's health care law that is forcing many Americans to choose between health coverage and depriving heirs of much of their inheritance.

California is one of 10 states that recover a broad array of costs from recipients of Medicaid, the health program for the poor that is called Medi-Cal in California. The policy applies to recipients 55 and older -- and only after they die.

The seizure of assets has been going on for years but has suddenly become a heated issue since millions of low-income American adults began enrolling in the expanded Medicaid program created by the Affordable Care Act, commonly known as "Obamacare."

A bill in the California Legislature is aimed at reducing the amount of assets that can be "recovered" from recipients' estates. But the proposal faces resistance from the administration of Gov. Jerry Brown, which says the state needs the millions of dollars it collects every year to help fund Medi-Cal.

The federal government, concerned that the issue is deterring many from signing up for Medicaid, is essentially telling states to back off and stop trying to recover much of the money.

In contrast to traditional Medicaid beneficiaries -- low-income parents, children, seniors and people with disabilities -- the new group includes adults without minor children. Many of them are homeowners who have been laid off or are unemployed and are now getting by on dwindling savings. They are eligible for Medicaid if they earn up to 138 percent of the federal poverty level, which in 2013 was $15,856 for an individual or $21,403 for a couple.

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One of the Medi-Cal recipients is Campbell resident Anne-Louise Vernon, 59. She contends that California's aggressive cost-recovery program is unjust because people whose higher income levels allow them to get subsidized private health insurance through the new Obamacare health care exchanges don't have to pay back anything.

Vernon said she requires constant medical care because of severe nerve damage in her arms and arthritis in her legs --conditions that have prevented her from finding a job. The divorced mother of two said her home is her only real asset.

Medi-Cal, she said, has now essentially imposed a "reverse mortgage" on her home in exchange for health insurance.

"What is fair about that?'' asked Vernon.

When Medicaid was signed into law by President Lyndon Johnson in 1965, "asset recovery" was optional. In 1993, however, the federal government began requiring all states to recoup the expenses of long-term care for Medicaid recipients ages 55 or older. States were given the option to recover all other Medicaid costs for those recipients -- and California jumped at the chance.

State finance and health officials this week declined to comment on the pending legislation. But in the past, they have insisted that the provision doesn't affect the vast majority of Medi-Cal beneficiaries -- and noted that the average recovery amount is about $15,000.

Still, Vernon and Richmond resident Chris Darling, 62, who also enrolled in the expanded Medi-Cal program, worry that their future medical costs will eat up their estates. Darling even started an online petition on MoveOn.org to fight the state's asset grab.

"It strikes me as horrible to have to choose between having health protection and your estate,'' said Darling, who called the situation "Orwellian."

Now, Darling and Vernon are pinning their hopes on both state and federal efforts to curtail asset recovery efforts.

On Tuesday, a state Assembly health committee will take up proposed legislation that would limit Medi-Cal recovery only to what's required under federal law: the cost of long-term care in nursing homes.

Should it pass Tuesday and then get the blessing of the Assembly appropriations committee in mid-August, it would be voted on by the Legislature by the end of August. Brown would have until the end of September to decide whether to sign it.

"I don't know of any other program that demands repayment after a recipient dies,'' said Hernandez, who chairs the Senate's health committee. "We don't do it for Medicare. We don't do it for people getting coverage through the (Covered California health care) exchange, and most other states don't require estate recovery. People are really frightened about this policy."

In a Feb. 21 memo, the federal Centers for Medicare & Medicaid advised states to eliminate recovery of Medicaid benefits beyond long-term care services for the newest group of low-income adults Medicaid recipients, whose health care costs are being paid 100 percent by the federal government. That will be reduced to 90 percent in 2020.

Oregon and Washington have already eased off on their recovery efforts. Brown's budget advisers, however, are urging him to oppose Hernandez's legislation. An analysis by the state's finance department says California would lose $15 million annually.

A Brown spokesman said the state won't exempt the newest recipients from asset recovery because California has to prepare to cover the 10 percent of their Medi-Cal costs that the federal government won't be picking up.

On average, the state in the last decade has collected about $60 million annually from Medi-Cal recipients' estates. Half of that is returned to the U.S. Treasury because Medicaid is funded equally by the federal government and the states.

Considering that the state now spends more than $26 billion a year on Medi-Cal, Hernandez argues that $15 million is a negligible loss.

"I take my fiduciary responsibility to the state very seriously,'' Hernandez said, but that's "not a lot to spend to do away with a practice that unnecessarily scares needy people out of getting themselves covered."

WHAT THE BILL WOULD DO
Limit seizure of assets of Medi-Cal recipients age 55 and older to amount spent on long-term care in nursing homes.
Eliminate asset seizure from estates of surviving spouses of deceased Medi-Cal recipients.
Require the state to provide Medi-Cal recipients, at no charge, a list of Medi-Cal expenses subject to "recovery."
Source: Office of state Sen. Ed Hernandez